ICRA Nepal has graded total loan of Rs 7.337 billion of Arghakhanchi Cement Private Limited with LBBB+/A3+ ratings

Wed, May 20, 2020 12:26 PM on Credit Rating, Latest,
ICRA Nepal...

ICRA Nepal has assigned along-term rating of [ICRANP] LBBB+ @(pronounced ICRA NP L triple B plus) and a short-term rating of [ICRANP] A3+@(pronounced ICRA NP A three plus) to the instruments of Arghakhanchi Cement Private Limited (ACPL).These ratings remain on watch with negative implications.

The watch on assigned ratings with negative implications, mainly factor the expected impact of Covid-19 on the demand outlook for construction materials over the near to medium term. Slowdown in economic activities due to the pandemic is expected to result in declined sales with pressure on margins. However, the company’s ability to continue operations in last two months, albeit in a small scale, amid the lockdown provides some comfort. In these months, ACPL was able to book  ~50%  of  average  monthly  sales  of first eight months of FY2020. Additionally, the banking sector regulator’s relaxations  so  far and  expectations  of  further  relief  measures  from  Government,  could  provide further support.  ICRA Nepal would monitor the developments in the sector and the impact thereon on ACPL’s sales, margins, gearing, coverage and liquidity indicators; to ascertain whether further rating action is warranted.

Credit strengths

  • Strong operational profile
  • Comfortable financial profile
  • Long  track  record  of  operations  and  healthy  sales  growth
  • Experienced promoters/management; operational synergies by virtue of being promoted by large business groups

Credit challenges

  • Externalities  brought  on  by  Covid-19  could  affect  key  operating  parameters;  relief  measures  provided  so  far  only provide temporary respite
  • Sizeable proposed dividend likely to pressurise liquidity
  • High working  capital intensity 
  • Intense  competition
  • Vulnerability  to  cyclicality  and  seasonal  demand
  • Risk of regulatory changes

About the company  

Incorporated in July 1998 as Dynasty Industries Nepal Private Limited, the company was renamed Arghakhanchi Cement Private Limited (ACPL) in June 2011. ACPL produces and sells clinker and cement with a current installed capacity of 10,56,000 MTPA for clinker and 9,90,000 MTPA for grinding. The company is held by eight individuals from three business groups (the Siddhartha Group–35.0%,the Kedia Group –17.5%,and the Murarka Group –30.0%) and one Indian company,Uma Cement International (17.5%). Its factory is in Mainahiya, Rupandehi District. ACPL currently manufactures OPC and PPC under the brand, Arghakhanchi Cement.

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